Euro covered bond issuance is expected to pick up in November as banks exit blackout periods to find supportive conditions, but bankers said that there are few projects in the pipeline, while holidays, central bank meetings, and the US election have the potential to disrupt activity.

Some Eu9.25bn of new euro benchmark covered bonds were issued in October, a figure bankers said fell short of expectations after just Eu5.3bn of supply in September, and which is substantially below Eu16.25bn sold in October of last year.

“The third quarter was very quiet, with just Eu16bn of euro benchmark supply, and there was high hopes that we’d see something of a revival going into the fourth quarter,” said one. “For whatever reason, that hasn’t happened yet.”

Joost Beaumont, senior fixed income strategist at ABN Amro, noted that redemptions of around Eu18bn – the highest of any month this year – resulted in negative net supply of almost Eu9bn in October.

“Moreover, positive net supply of Eu20bn during the January-April period has turned significantly negative ever since,” he said. “Negative net supply now stands at Eu20bn.

“Taking into account the amounts that the Eurosystem has bought in the primary market – almost Eu21bn according to our estimates – negative net supply even rises to Eu41bn.”

Some bankers are bullish about the prospects for further covered bond issuance this week and throughout November given that many issuers are returning from blackout periods, and said the negative net supply is contributing to supportive issuance conditions.

“Certainly I’d expect November to see more activity than the last couple of months,” said a syndicate banker. “I do get the feeling that quite a few issuers are keen on the market, after having their hands tied by reporting periods.”

However, bankers said public holidays in Europe tomorrow could narrow the window for issuance this week, meaning deals are unlikely to be launched until Wednesday at the earliest.

They also cited central bank meetings this week, US non-farm payrolls on Friday and the upcoming US presidential election on Tuesday of next week (8 November) as having the potential to convince issuers to remain on the sidelines and to cause volatility in the wider markets.

“It looks like this week will be a two-and-a-half day week,” said a syndicate banker. “And after that, the window is far from clear.

“Political risks are increasing in the run up to the US elections, with Clinton under fire, and all that uncertainty will mean it is difficult to get any real stability – either in yields or in the wider markets. It is a fragile environment.”

Furthermore, few publicly-mandated deals are in the pipeline. Neither of the two most recently announced are expected until later in November: Caja Rural de Navarra is set to go on the road ahead of a potential inaugural sustainable covered bond issue (see separate article), while ANZ has mandated for a covered bond and/or a senior unsecured issue, with both roadshows set to finish on 10 November.

Bank of Queensland held a roadshow in September ahead of a planned conditional pass-through covered bond debut, but a banker at one of leads Commerzbank and NAB said the deal will not be launched in November.

“It is not on the agenda for immediate issuance,” he said. “It will be nearer the end of the year, at the earliest, and may rather be in early 2017.”

Photo credit: Lorie Shaull/Flickr